International airlines are starting the painful process of scaling back their businesses as the prospect of a quick recovery from the coronavirus pandemic fades and carriers prepare for a world where people fly much less.
This week alone, Europe’s top airlines said they would have to shed tens of thousands of jobs as they race to slash costs because of the rapidly deteriorating medium-term outlook for aviation.
Ryanair (RYAAY), Lufthansa (DLAKY), British Airways, Scandinavian Airlines (SASDF) and Air France-KLM (AFLYY) could shed as many as 32,000 jobs among them as they shrink their businesses to account for an industry that will take years to recover from the pandemic. More are likely to follow.
Carriers are hoping that hiring freezes, part-time working and early retirement might soften the blow for their employees, but there’s little cause for optimism.
Ryanair will cut 3,000 jobs and keep 99% of flights grounded through June
“We are currently facing the greatest challenge of our recent history,” Lufthansa CEO Carsten Spohr said in remarks posted on the German aviation group’s website on Friday. “We are fighting for the future of this company and the future of the roughly 130,000 employees of the Lufthansa Group,” he added.
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Lufthansa Group has already placed more than 80,000 of its staff on reduced working hours and its flight schedule has “gone back in time” to levels not seen since 1955, with 3,000 of its daily flights canceled and 92% of its fleet grounded, Spohr said. “That is extremely bitter, devastating and painful.”
With practically no international travel, and no clarity on when demand will return, it is almost impossible to overstate the financial crisis facing airlines.
Aviation workers face a “tsunami of job losses,” Brian Strutton, general secretary of the British Airline Pilots’ Association said in a statement Friday. Without help from government, the industry “will be devastated,” he added.
His warning followed a one-two punch from British Airways, which said Tuesday it may have to cut more than a quarter of its workforce, and Ryanair, which announced 3,000 job cuts earlier on Friday.
“What we are facing as an airline … is that there is no ‘normal’ any longer,” British Airways CEO Alex Cruz said in a letter to staff that was released to CNN Business. “The scale of this challenge requires substantial change so we are in a competitive and resilient position… to withstand any longer term reductions in customer demand,” he added.
Global airline passenger revenues are expected to tumble by as much as 55% this year, or some $314 billion, according to the International Air Transport Association.
Several major carriers in Europe and the United States are already seeking government bailouts.
Lufthansa, which owns carriers in Germany, Switzerland, Austria and Belgium, is in “intensive talks” with the German government about financial support, Spohr said. The company has already received aid from the Swiss government and is in negotiations with governments in Austria and Belgium.
“The future of Lufthansa is currently being decided. The question is whether we can avoid bankruptcy with the support of the governments of our four home countries,” Spohr said.
Ryanair on Friday said it expects that passenger demand and pricing won’t recover until at least summer 2022. Spohr said it could take even longer, until 2023, for global demand to find its “new balance.”
US airlines will have to cut too
The warnings from European airlines do not bode well for their rivals in the United States, which are already reporting billions of dollars in losses for the first quarter. While US airlines are not allowed to implement any layoffs as a condition of their $25 billion bailout package, this ban only runs until September 30.
With the aviation sector set to be significantly smaller for several years, hefty job cuts among US carriers seem inevitable.
Already, about 100,000 employees at the four major airlines alone — American (AAL), United (UAL), Delta (DAL) and Southwest (LUV) — have agreed to take salary cuts or unpaid leave, some for as long as nine months.
“We will indeed, irrespective of where demand is, go into the fall with more team members than we have work for,” American Airlines CEO Doug Parker told investors on Thursday.
“If demand remains significantly diminished on October 1, we simply won’t be able to endure this crisis without implementing some of the more difficult and painful actions,” United Airlines CEO Scott Kirby added Friday, making reference to “involuntary furloughs.”
The crisis is also having knock-on effects on planemakers and airports. Boeing (BA) this week announced 16,000 job cuts and a $1.7 billion first quarter loss, while Airbus (EADSF) said it is furloughing more than 6,000 workers and “bleeding cash,” as airlines cancel or delay orders for new planes.
Europe’s biggest airport, London Heathrow on Friday reported a £352 million ($441 million) loss for the first quarter of this year, compared with a profit of £102 million ($128 million) for the same period last year.
It said it expects passenger numbers to be down by around 97% in April and announced that its planned expansion, including a third runway, will be delayed by at least two years partly due to the coronavirus crisis.
— CNN